The Government said the reforms will help employers and savers to compare schemes and make informed choices.

The rollout of automatic enrolment has driven a huge growth in the amount of investment entering UK pension funds, from less than £90 billion in 2012 to around £116 billion in 2022, the Government said.

But it added that disclosure requirements for defined contribution (DC) pension funds are currently inconsistent across the market and do not require a breakdown of UK investments, sometimes making it difficult for policymakers and savers to understand where this money is invested.

Under the plans, by 2027, DC pension funds across the market will disclose their levels of investment in British businesses, as well as their costs and net investment returns.

Pension funds will be required to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10 billion in assets.

Schemes performing poorly for savers will not be allowed to take on new business from employers, the Government said, with The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) having a range of intervention powers.

The plans are subject to a consultation by the FCA and build on the Government’s Mansion House compact, that encouraged pension funds to invest at least 5% of their assets in unlisted equity.

Chancellor Jeremy Hunt said: “We have already started on a path to drive growth, unlock capital for our most promising companies and improve outcomes for savers – and these new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes.

“British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers.”

Work and Pensions Secretary Mel Stride said: “The incredible success of automatic enrolment has opened up a huge opportunity to grow the economy, boost British businesses and fuel our futures. It has helped us transform the pensions landscape over the last decade.

“And our Value for Money framework will take this one step further, focusing pension managers on their number one priority – securing the best possible returns for savers – as well as providing a boost to the wider economy.”

Julia Hoggett, CEO of London Stock Exchange plc and chair of the Capital Markets Industry Taskforce, said: “Pension holders should know how much is being invested in equities in their home market.”

James Ashton, Quoted Companies Alliance chief executive, said: “We welcome these new disclosures and hope they are the first step to many UK pension funds discovering the numerous high-potential companies whose shares are traded on their doorstep.”

Chris Hayward, policy chairman of the City of London Corporation, said: “The Mansion House Compact aims to channel long-term capital from pension funds into growth companies. It will support high-growth companies to start, scale and stay in the UK. We welcome the Government’s action to support this objective which will turn the dial to drive investment into UK businesses.”

Phil Brown, director of policy at People’s Partnership, provider of the People’s Pension, said: “It was only a matter of time before the proposed value for money framework developed teeth.

“This could be very challenging for some, but the Government has long signalled its intention to consolidate the workplace pensions market and drive better value for savers.”

Yvonne Braun, director of long-term savings at the Association of British Insurers (ABI), said: “Focusing the pension system on value rather than cost alone will be hugely beneficial for savers. A consistent, joined-up and measured approach to value for money should help employers, and ultimately savers, understand where their pensions are invested, compare different schemes and make informed choices.”

Laura Myers, partner and head of DC pensions at pension consultants LCP (Lane, Clark & Peacock), said: “Pension fund trustees need to be able to invest their members’ money where it will provide the best returns. More transparency is welcome, and many trustees would like to invest more in the UK if the right investments were available.

“Indeed, we have already worked with many schemes to add private market investments. But the most important focus must always be to deliver the best pensions for savers.”